Category: Ghana Stock Exchange

How to Invest on the Ghana Stock Exchange

I opened a trading account through a Ghanaian stockbroker about five years ago. While the broker has executed all trades that I’ve asked them to complete, I have reservations about referring them to my clients here. Their service has been adequate, but far from outstanding.

So I compiled a list of stockbrokers who trade on the Ghana Stock Exchange and emailed each of them. I asked them if they catered to foreign investors and, if so, how much they required in order to open an account. Of the 20 brokers that I contacted, I found the following four brokers to be especially helpful and responsive.

Earlier this week, we took a look at Ghana’s top bank stocks. In light of this, I thought it might be helpful to run through the details of actually buying and selling stock on the Ghana Stock Exchange.

Ghanaian Stockbrokers

I opened a trading account through a Ghanaian stockbroker about five years ago. While the broker has executed all trades that I’ve asked them to complete, I have reservations about referring them to my clients here. Their service has been adequate, but far from outstanding.

So I compiled a list of stockbrokers who trade on the Ghana Stock Exchange and emailed each of them. I asked them if they catered to foreign investors and, if so, how much they required in order to open an account. Of the 20 brokers that I contacted, I found the following four brokers to be especially helpful and responsive.

  • African Alliance Securities Ghana – African Alliance owns brokerage houses on most African exchanges. They produce top-notch research, and I can testify to the professionalism and expertise of their staff.
  • CAL Brokers – A subsidiary of CAL Bank, CAL Brokers prides itself on innovation. It is the only Ghanaian broker to offer an online trading platform – iBrokerGhana.
  • FirstBanc Brokerage Services – A home-grown investment bank, FirstBanc offers a wide range of investment advisory and asset management services. Their Platinum Account is an actively-managed mutual fund that invests in local equities.
  • Stanbic Bank Ghana Brokerage – This division of the massive Standard Bank Group offers extremely professional customer service, but they do not allow dividends to be deposited into trading accounts. Foreign investors must open a local bank account if they would like to cash their dividend checks.
Photo by World Bank Photo Collection

None of the brokers above require a minimum beginning balance to open an account. You must, however, fund your account before executing any trades.

Trading Costs

Commissions and fees will run you 2.5% of the total transaction value for most Ghanaian brokers. Stanbic Bank Ghana did, however, note that it charges according to a sliding scale. They charge investors a 2.1% commission for transactions between GHS5,000-10,000 (roughly $3,000-$6,000). And the rate drops for higher amounts.

Opening a Ghanaian Brokerage Account

Now let’s walk through the process of opening an account and buying your first shares.

Step 1: Complete and Return the Account Opening Form

The account opening form (aka the “Know Your Client” or KYC Form) typically requires disclosure of your passport number or other ID number, your address, and banking details. Here’s a sample from CAL Brokers Ghana.

Step 2: Complete and Return the GSE Securities Depository Account Registration Form

In late 2008, the Ghana Stock Exchange set up a central securities depository, which records the ownership of securities in electronic accounts, thus eliminating the need for share certificates. This dramatically improved trading efficiency but created one more form for new investors to fill out. This is the form you will need to complete and return to your broker. You will then be assigned a Ghana Securities Depository (GSD) account number. This number will accompany every trade order you place, allowing the GSD to keep record of all your Ghanaian holdings.

Step 3: Provide a Certified Copy of Your Passport and an Additional Passport-sized Photo.

These must be mailed to the stock broker. Note that, for some brokers, a certified copy of your driver’s license will suffice.

Step 4. Provide a Canceled Check or Copy of a Recent Bank Statement

This is used to verify that you are indeed the owner of the account that will be used to send and receive funds.

Step 5. Wire Funds to Your Brokerage Account

After opening your trading account, your broker will provide you with its bank details so that you can fund your account. The most efficient way to do this is via wire transfer. If you haven’t sent an international wire before, I suggest that you take your broker’s bank details to your local bank branch and ask them to walk you through the process. They’ll make sure that your funds arrive securely. Note that most US banks charge about $25 for outgoing international wires.

Step 6. Submit a Trade Order

You’ve done your research and found a stock that you’d like to buy. What now?

While some brokers will request a signed trade mandate form, for most brokers, all you need to do is send an email to your broker with your trade instructions. Keep in mind that some Ghanaian shares are rather illiquid, so I advise specifying a limit price for all of your orders. This will help you avoid paying significantly more for your shares than you had intended to pay.

Your broker will then execute your trade and send you a contract note that specifies the buy or sell price, commissions, and fees. Settlement of share trades takes three days in Ghana, so if you’ve sold shares, don’t expect to receive the proceeds of a sale before then unless you’re willing to incur a penalty to settle the trade more quickly.

Mission Accomplished

That’s it! Follow these steps and you’re a Ghana investor.

The process of opening a foreign brokerage account can be confusing. If you found this walk-thru to be clear as mud, please don’t be shy. Post your questions in the comments, and I’ll do my best to get answers for them.

Further Reading

– How to Invest on the Botswana Stock Exchange

– How to Invest on the Zimbabwean Stock Exchange

– How to Invest on the Nairobi Stock Exchange

Banking the Gold Coast: Investing in Ghana’s Booming Banks

I believe one of the best ways to tap into Africa’s high-growth economies without exposing yourself to excessive risk is by investing in a well-managed, local bank. African banks’ operations are generally easy to understand. Their balance sheets are refreshingly free of exotic derivatives. For the most part, they simply take in deposits and make loans. It’s banking at its simplest.

Ghana’s banks have enjoyed a purple patch in recent years due to a combination of rapid economic growth and tight fiscal policy. The government expects to post 9.4% economic growth this year thanks to oil revenues – making it one of the fastest-growing economies in the world.

So, which banks are providing the capital for this remarkable expansion? Here is a roundup of the most prominent ones listed on the Ghana Stock Exchange.

I believe one of the best ways to tap into Africa’s high-growth economies without exposing yourself to excessive risk is by investing in a well-managed, local bank.

African banks’ operations are generally easy to understand. Their balance sheets are refreshingly free of exotic derivatives. For the most part, they simply take in deposits and make loans. It’s banking at its simplest.

Ghana’s banks have enjoyed a purple patch in recent years due to a combination of rapid economic growth and tight fiscal policy. Fuel price increases and a boost to the minimum wage will likely accelerate inflation for the remainder of the year. But the government still expects to post 9.4% economic growth this year thanks to oil revenues – making it one of the fastest-growing economies in the world.

So, which banks are providing the capital for this remarkable expansion?

Here is a roundup of the most prominent ones listed on the Ghana Stock Exchange:

Bank 5-Yr Earnings Growth Efficiency Ratio ROE ROA Yield P/E Ratio P/B Ratio
CAL Bank 30.8% 0.66 21.6% 2.7% 4.8% 3.7 0.8
Ecobank Ghana 36.8% 0.51 32.7% 4.1% 6.3% 10.1 3.1
Ecobank Transnational 21.4% 0.72 13.4% 1.6% 6.8% 4.2 0.6
Ghana Commercial Bank 18.4% 0.74 23.3% 2.7% 3.8% 8.4 1.8
Standard Chartered Ghana 24.0% 0.53 41.6% 5.3% 2.6% 11.1 4.4
SG-SSB 18.2% 0.73 19.4% 3.3% 7.8% 6.9 1.3
UT Bank 42.5% 0.74 28.7% 2.7% 3.2% 6.7 1.6

CAL Bank (CAL:GN)

Founded in July 1990, CAL Bank serves primarily corporate customers, but in recent years it has attempted to grow its retail customer base. It now operates 17 branches and 48 ATMs throughout the country. Still, commercial customers accounted for 97% of its loan book in 2010.

Photo by Retlaw Snellac

CAL’s management knows how to make money. It grew profits by 90% in 2011 and at a 30.8% pace over the past five years.

The bank hasn’t yet announced its 2011 dividend, but in 2010, it paid out 33% of net income. If they are similarly generous this year, the dividend would more than double. But even if the payout remains unchanged at GHS0.013, buyers at today’s price will snatch up a 4.8% yield. I expect management will raise the dividend. Apart from one blip in 2009, the bank boosted its payout every year since 2002.

Ecobank Ghana (EBG:GN)

One of Ghana’s biggest banks in terms of total assets, EBG recently completed an acquisition of a smaller competitor which will give it the second largest branch network in the country.

Its 4.1% return on assets is testament to its profitability, which can, in part, be traced back to efficient management. EBG’s operating expenses and provisions for bad loans amounted to just 51% of net interest and fee income over the past 12 months. That’s the best efficiency ratio in Ghana, and one that many developed world banks would be proud of.

It has increased its dividend every year since 2002 and currently yields an eye-catching 6.3%. This year’s dividend is yet to be announced, but I’m confident that management will have room to boost its payout once again. Trailing earnings are up 23% on the previous year’s numbers thanks to a 12% boost in net interest income. The bank’s earnings have grown at a 36% pace since 2006.

Ecobank Transnational (ETI:GN)

Togo-based ETI is, by far, the largest bank listed on the Ghana Stock Exchange. It now operates in 35 African countries and is the parent company to EBG.

In spite of its impressive size, management remains in growth mode. Over the most recent 12 months, it increased customer deposits 22% from a very high base. This rapid growth depresses its profitability ratios. Its return on assets is just 1.6%. But don’t miss the forest for the trees. Management wants to build ETI into the continent’s leading bank, and they have doubled its earnings over the past 12 months.

ETI’s share price has dropped 33% since February 2011, and it now trades at just over half of book value (0.55) – a staggering discount. Investors may be waiting to see how the company’s recent acquisition of Nigeria’s Oceanic Bank impacts the balance sheet. Upon completion of the deal, ETI’s Nigerian subsidiary will be that country’s fifth largest bank.

Ghana Commercial Bank (GCB:GN)

GCB boasts the largest branch network (157 branches) of any Ghanaian bank, which makes it a leader in the retail segment of the market. For many years, most of GCB’s earning assets were tied up in an under-performing loan to the national oil refinery. These assets were freed up when the government restructured the refinery’s financing a couple years back. Since then, GCB’s management has struggled to digest this excess capital. Loans currently represent just 25% of total deposits.

While small relative to its size, the loans that the bank does make tend to perform quite well. Combine that with a low-cost retail deposit base, and you can see why GCB’s net interest margin (10.6%) is one of the country’s widest.

GCB has grown earnings at an annualized 18% rate over the past five years – an impressive stat given the stock’s 8.4 P/E ratio. It would grow them even faster, however, if management did a better job of containing operating costs. GCB’s efficiency ratio is 74% – remarkably high for a bank without an aggressive expansion program.

Standard Chartered Bank Ghana (SCB:GN)

SCB is Ghana’s blue-chip bank and a favorite among corporate customers. Founded in 1896, it is big, well-managed, and impressively profitable. Over the most recent 12 months, it returned 5.3% on each Cedi of its assets. No other Ghanaian bank even comes close to such a figure.

But before you call your broker be aware that SCB shares also boast a blue-chip price tag. The stock trades at more than 11x trailing earnings, 4.4x book value, and yields just 2.6%. Moreover, earnings growth has been lackluster of late. Profits increased just 8% during the past 12 months, and, as a subsidiary of the Standard Chartered financial group, it has no regional expansion prospects. The bank would have room to grow in the retail segment of the market, but with just 21 branches, management has demonstrated little inclination to do so.

SG-SSB (SGSSB:GN)

A subsidiary of French financial services giant, Societe Generale, SG-SSB operates 42 branches in Ghana and ranks fourth among its peers in market capitalization.

The bank boasts a balanced revenue stream with 43% of operating income coming from corporate clients, 18% from retail customers, 12% from small and medium-sized businesses, and the remainder from treasuries.

In its purest form, banking is about attracting low-cost deposits and then lending them out at a higher rate. No Ghanaian bank did this better than SG-SSB over the past year. Its net interest margin stands at 10.8%. But this is counter-balanced by relatively anemic growth in the loan portfolio which came in at less than 20% – much less than its mid-size peers.

SG-SSB’s share price has dropped 37.5% over the past 12 months. It now trades at just 1.3x book value and yields an attractive 7.8%.

UT Bank (UTB:GN)

UTB rounds out this bevy of banks. Founded in 1997 as a micro-lender, it is the upstart of the group and the smallest in terms of total assets. It is rapidly capturing market share. It has grown earnings at an astounding 42.5% annualized rate since 2006 and nearly doubled its loan book over the past 12 months.

That kind of loan growth raises concerns about credit quality, especially when one considers the bank’s promise to provide business loans in less than 48 hours. Credit analysis can be none too thorough under such a tight timeframe. Still, non-performing loans dropped to 12% of the portfolio in 2010 from 20% the year before.

UTB’s profits have increased nearly 90% over the most recent 12 months, making its 3.2% dividend yield worth a look.

Dividends AND Growth… Oh My!

Do you see any compelling investment opportunities on this list? If you’d like to dig deeper into the numbers, I highly recommend checking out Annual Reports Ghana’s excellent library of financial statements.

[Disclosure: I own shares of Ghana Commercial Bank.]

Related Reading

How to Invest on the Ghana Stock Exchange